Comprehensive Ratio Analysis Data for Lozano Chip Company and its industry averages follow. Lozano Chip Company: Balance Sheet as of December 31, 2019 (Thousands of Dollars) Cash $ 215,000 Accounts payable $ 600,000 Receivables 1,575,000 Notes payable 100,000 Inventories 1,120,000 Other current liabilities 520,000 Total current assets $2,910,000 Total current liabilities $1,220,000 Net fixed assets 1,350,000 Long-term debt 400,000 Common equity 2,640,000 Total assets $4,260,000 Total liabilities and equity $4,260,000 Lozano Chip Company: Income Statement for Year Ended December 31, 2019 (Thousands of Dollars) Sales $7,500,000 Cost of goods sold 6,375,000 Selling, general, and administrative expenses 919,000 Earnings before interest and taxes (EBIT) $ 206,000 Interest expense 40,000 Earnings before taxes (EBT) $ 166,000 Federal and state income taxes (25%) 41,500 Net income $ 124,500 Calculate the indicated ratios for Lozano. Do not round intermediate calculations. Round your answers to two decimal places. Ratio Lozano Industry Average Current assets/Current liabilities 2.0 Days sales outstanding (365-day year) days 35.0 days COGS/Inventory 6.7 Sales/Fixed assets 12.1 Sales/Total assets 3.0 Net income/Sales % 1.2 % Net income/Total assets % 3.6 % Net income/Common equity % 9.0 % Total debt/Total assets % 10.0 % Total liabilities/Total assets % 60.0 % Use the extended DuPont equation to calculate ROE for both Lozano and the industry. Do not round intermediate calculations. Round your answers to two decimal places. For the firm, ROE is %. For the industry, ROE is %.

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter3: Analysis Of Financial Statements

Section: Chapter Questions

Problem 13P: Data for Lozano Chip Company and its industry averages follow. Calculate the indicated ratios for...

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Comprehensive Ratio Analysis

Data for Lozano Chip Company and its industry averages follow.

Lozano Chip Company: Balance Sheet as of December 31, 2019 (Thousands of Dollars)
Cash	$ 215,000	Accounts payable	$ 600,000
Receivables	1,575,000	Notes payable	100,000
Inventories	1,120,000	Other current liabilities	520,000
Total current assets	$2,910,000	Total current liabilities	$1,220,000
Net fixed assets	1,350,000	Long-term debt	400,000
		Common equity	2,640,000
Total assets	$4,260,000	Total liabilities and equity	$4,260,000

Lozano Chip Company: Income Statement for Year Ended December 31, 2019 (Thousands of Dollars)
Sales	$7,500,000
Cost of goods sold	6,375,000
Selling, general, and administrative expenses	919,000
Earnings before interest and taxes (EBIT)	$ 206,000
Interest expense	40,000
Earnings before taxes (EBT)	$ 166,000
Federal and state income taxes (25%)	41,500
Net income	$ 124,500

Calculate the indicated ratios for Lozano. Do not round intermediate calculations. Round your answers to two decimal places.

Ratio	Lozano	Industry Average
Current assets/Current liabilities		2.0
Days sales outstanding (365-day year)	days	35.0	days
COGS/Inventory		6.7
Sales/Fixed assets		12.1
Sales/Total assets		3.0
Net income/Sales	%	1.2	%
Net income/Total assets	%	3.6	%
Net income/Common equity	%	9.0	%
Total debt/Total assets	%	10.0	%
Total liabilities/Total assets	%	60.0	%

Use the extended DuPont equation to calculate ROE for both Lozano and the industry. Do not round intermediate calculations. Round your answers to two decimal places.

For the firm, ROE is %.

For the industry, ROE is %.
Outline Lozano's strengths and weaknesses as revealed by your analysis.

The firm's days sales outstanding is more than twice as long as the industry average, indicating that the firm should  credit or enforce a  stringent collection policy.

The total assets turnover ratio is well  the industry average so sales should be  , assets  , or both.

While the company's profit margin is  than the industry average, its other profitability ratios are  compared to the industry - net income should be  given the amount of equity and assets.